A place to find news, research and discussion on economic issues related to the impact of globalisation on the environment

Monday, February 10, 2014

EU’s higher energy costs will drive jobs to US and China

World Review report. Bread and butter for the "Globalisation and the Environment" blog.

It is this sort of story that kills any chance of a global agreement of climate change. The evidence suggests that such effects are limited in reality due to the capital intensive nature of the these firms.

However, economics is all about margins and there is no doubt that high energy costs mean that EU firms become less competitive. Energy costs in China have a degree of subsidy but so do those in Germany and other EU countries. The US situation is a little different - energy costs due to fracking really are a lot lower than in Europe and anecdotal evidence suggest that heavy industry is moving back (or setting up for the first time providing additional capacity and more competition).

The EU is back-tracking on green policies as quickly as it can - jobs and growth are back as priorities.

Any global agreement on climate change is as far away as it ever has been. I for one am still pessimistic.

"THE EUROPEAN Commission is doubling its targets to reduce carbon
dioxide emissions by 2030 in a new energy strategy released in January
2014.

But climate change policies alone will not work. They will
drive Europe’s energy-intensive and manufacturing industry out of Europe
to the US and emerging markets where lower environmental and climate
protection policies will increase greenhouse gas emissions globally.

The new strategy proposes a binding carbon dioxide emissions reduction of 40 per cent by 2030.

The
EU maintains its claimed leadership role of the global climate
mitigation policies, and is the only region still setting its energy and
climate policies to the Kyoto target of reducing global warming to two
degrees Celsius.

The commission also adopted a binding 27 per
cent share of renewable energies in energy consumption at EU-level and
non-binding environmental recommendations for European shale gas
projects.

The proposals still need approval from the European Council in March before they are passed into law.

The
new energy strategy and targets are an evolutionary development of its
2007 energy action plan and the ‘20-20-20-targets’ for 2020.

The
commission believes its 2007 EAP and the current energy and climate
policies have made significant progress to achieve its 20-20-20 targets.

•
Greenhouse gas emissions decreased by 18 per cent by 2012 compared with
1990 and is expected to reduce to 24 per cent by 2020 and 32 per cent
by 2030

EU’s carbon intensity declined by 28 per cent between 1995-2010

•
Share of renewable energy grew to 14.4 per cent in 2012 and is expected
to increase to 21 per cent by 2020 and 24 per cent in 2030

• EU - with China - is the largest investor in renewable energy

• EU installed 44 per cent of global renewable electricity production - excluding hydro - by the end of 2012

• It has created new eco-industries employing 4.2 million people

• Its energy intensity reduced by 24 per cent in its economy and 30 per cent in industry between 1995-2011.

The
United States is becoming increasingly self-sufficient and a net
exporter of oil and gas. But the EU’s present overall import
dependencies will rise from 55 per cent to more than 60 per cent by
2035, gas import dependence from 67 per cent to more than 80 per cent,
and oil import dependence from 80 per cent to more than 90 per cent.

This
is despite the expansion of renewables and is due to declining
domestic, oil, gas, nuclear and coal production and rising gas
consumption.

US net energy imports have been reduced by more than
30 per cent between 2006-2012 due to lower demand and increased domestic
production. The US may become the world’s largest oil producer by 2015.

The EU paid more than 400 billion euros for oil and gas fuel
imports - 3.1 per cent of the EU’s GDP - in 2012 compared with around
180 billion euros on average between 1990-2011. The present import bill
is expected to increase to 490 billion euros by 2035.

The EU is
already the world’s largest importer of energy, which casts doubt on its
future economic competitiveness as well as energy supply security. Its gas and electricity prices for industrial consumers have
increased by 3.3 and 15 per cent respectively and for households by 13.6
and 18 per cent between 2008-2012. The EU’s energy system costs are
expected to rise to 14 per cent of GDP by 2030 compared with 12.8 per
cent in 2010, and its electricity costs will increase by another 31 per
cent, before inflation, from 2011 to 2030.

The main cost driver has been the rise of taxes, levies and network costs on energy.

US
shale production has reduced natural gas prices by more than two-thirds
since 2008. In the past five years, US carbon dioxide emissions
decreased by 13 per cent to the lowest levels since 1994 due to the
coal-to-gas switch, new energy saving technologies and a doubling of
renewable energy production.

US industrial gas prices have
dropped by 66 per cent since 2005 while the EU saw a 35 per cent
increase. EU industry gas prices are now three to four times higher
than the US, Russia and India and 12 per cent more than China. This gas
price disparity will last for another 20 years, according to the IEA.

The
energy cost advantage in the US has spurred an industrial renaissance
there among energy-intensive industry such as chemicals.

The IEA
has predicted that Europe will lose a third of its global market share
of energy intensive industrial exports, employing almost 30 million
people, over the next two decades as the result of its higher energy
costs.

The EU is moving in the right direction with its new
strategy, headline targets and non-binding environmental recommendations
but these positive steps will be insufficient to enhance the EU’s
industrial competitiveness towards the US.

They can only be a
first step in redefining Europe’s energy and climate policies to reserve
its overall economic competitiveness for future generations."

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About me

This blog is written by Professor Rob Elliott, an academic economist, with an interest in all things international and environmental..I am currently a Professor of International and Environmental Economics at the University of Birmingham..Find me at my homepage.

This weeks read

Following the recent workshop on the "Economics of the Stern Review" and the fuss caused by the "great global warming swindle" this book represents an excellent introduction to the topic. Chapter 6 is the chapter it all hinges upon.